Kent Deng
From Economic Failure to Economic
Reforms
Lessons from China’s modern growth, 1949 to 2012
The road of modern economic growth has been very
bumpy for China since 1949. This article draws lessons
from China’s experience of the past six decades in a
dichotomy of Maoist orthodox vs. Dengist reforms. It
unveils that rapid investment and a fast GDP growth
are not the only things happening in China.
A. China and its economy in 1946
In 1946 in the wake of the Second World War, countries in East Asia
were put more or less on the same starting point, facing the very similar
kinds of challenges, difficulties, and perspectives for the future. To begin
with, they included immediate tasks such as state-rebuilding, economic
reconstruction and geopolitical re-orientation in the post-war world. In
the case of China, the Japanese invasion from 1931 (in Manchuria) to 1945
caused a total over US$ 100–180 billion (of the 1945 price) direct damage
to assets in China Proper – houses, vehicles, factories, public utilities and
transport systems – together with the destruction of crops of 600 million
mu (sixty percent of China’s standing total).1 The losses in assets alone
were equivalent to 70–160 years of China’s annual GDP of the pre-1937
peak.2 In addition, they caused US$ 600 billion (of the 1945 price) indirect
damage to China’s national economy.3 China’s endeavour to modernise
was pushed all the way back to the pre-Opium War era. Being a loser of
the war, Japan was thoroughly destroyed, too, economically; plus, it was
colonised by the United States and domestic peace was resumed. As an
American war ally, China was considered a good candidate for economic
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Deng
aid. In fact, there was such a thing called the ‘Marshall Plan for China’
for post-war reconstruction.4 However, domestic peace was not on the
communist agenda. On the very second day after the Japanese surrender,
the gloves came off. The Commander-in-Chief of the Communist army,
Zhu De (1886–1976), openly broke away from the wartime coalition with
the Republicans (called the “united front against Japan,” kangri tongyi
zhanxian) and declared that all of the ex-Japanese territories were fair game
for his army.5 This re-ignited China’s civil war. From then on, Mainland
China took a very different path in growth and development from that of
post-war Asian industrialisers: Japan, South Korea, Taiwan, and Hong Kong.
B. Maoism and its economic failure
The communist leader Mao Zedong was brain-washed by Moscow (Stalin
and Comintern). As a result, Mao’s understanding of China was entirely
Eurocentric: all he intended to do after his 1949 military victory over the
Republicans was to recast post-war China into a Soviet mould. His pathetic
understanding of China’s economy and society caused political tension and
public resistance at all levels. Predictably, he used the Stalin’s despotic purges
to systematically silence China, which was his priority. From 1950 until his
death in 1976, Mao spent most of his time and energy in suppressing his own
people at the expense of China’s economic recovery and prosperity.6 He did
that during WWII: Mao spent more time and energy on this purge during
the crucial years of the Second World War than on fighting the Japanese.7
Mao’s priority to purge society stagnated China’s growth and
development despite the alleged progresses and achievements along
the official line. The evidence has come from several aspects. First, the
increase in the industrial workforce (1.76 percent per year) was slower than
China’s population growth (2.03 percent per year), suggesting that China’s
industrialisation process stalled.8
Industrial
workforce (I)
Total population
(II)
I/II %
1959
45.5
672.1
6.8
1974
59.1
908.6
6.5
Annual growth(%) 1.76
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2.03
From Economic Failure to Economic Reforms
Second, Maoist urban nominal wages were frozen from 1957 onwards.
With inflation, workers’ real wage eroded badly: by 1978, it halved its 1957
level (see Table 1).
Table 1. Nominal and Real Wage in the State Sector, 1957–78
Year
Nominal wage
(annual)
Index
Real wage
(1957 price)*
Index
1957
637
100
637
100
1965
652
93
539
85
1976
605
86
327
51
1978
644
88
310
49
Source: Based on V. D. Lippit, The Economic Development of China (Armonk, New York
and New York: M. E. Sharpe, 1987), 150; cf. Zhao, “Path, Stages and Main Lessons.”
Note: *Conversion is based on the average inflation rate of 2.01% per year for the period
of 1950 to 1978, based on Li, “Macro Control,” 49–50.
To put the Maoist frozen wage in historical perspectives, a social survey
during 1920–1928 indicates that China’s railway workers’ wages were on
the rise.9 Such a decline in industrial wages confirms a low demand for
industrial growth in the economy.
Thirdly, by the end of his rule, at least 77 percent of China’s workforce
was locked in the agricultural sector (as in 1975).10 Structurally, the Maoist
economy is not too different from that under the Republicans when 75
percent of China’s workforce was employed by the agricultural sector (as in
1946). The point is that countries with 70 percent of the population engaged
in agriculture were historically pre-industrial, exemplified by Meiji Japan
in 1872 (at 72 percent), Tsarist Russia in 1914 (at 75 percent), and colonial
India in 1901 (at 65 percent).11
Fourthly, illiterate in economic growth, whenever Mao decided to
muddle through the Chinese economy, disasters occurred. His notorious
‘Great Leap Forwards’ in 1959–61 caused the largest peace-time famine
in human history: 30 to 40 million Chinese died.12 Moreover, his blind
investment in heavy industry stunted the economy. It was documented that
under Mao the amount of state investment was a quarter of China’s annual
GDP each year and that the state capital assets to GDP ratio (hence the asset’s
GDP yield level) was about unity after 1957.13 It means that, after each round
of re-investment of a quarter of China’s GDP, the Maoist economy would
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Deng
enlarge by a quarter, ceteris paribus. Theoretically, therefore, after 25 years
(1952 to 1977) China’s capital stock should have grown to an equivalent of
264.7 times of its starting size (24.1 billion yuan in the 1952 constant price)
to a total of 6,379.3 billion yuan.14 In reality, the registered state-owned fixed
capital assets (guding zichan) in 1978 were mere 448.2 billion yuan (constant
price).15 The actual growth was merely seven percent of the expected total.
The point is that to achieve a growth from 24.1 billion yuan to 448.2 billion
yuan, China only needed 12.4 percent GDP each year for capital formation
and investment. So, 12.6 percent of the annual GDP for re-investment was
wasted in the process.16 The aggregate compounded waste was about 19
years’ total GDP of China at the starting level (1952). The root cause of the
problem was low investment returns due to productivity. The returns of
China’s annual investment declined by over 70 percent under Mao’s rule:17
Annual investment return rate (%)
1963 – 5
57 (100)
1971 – 5
15 (26)
From 1952 to 1978, China’s capital productivity increased minus 3.1 percent
a year, and China’s total factor productivity minus 1.4 percent a year.18 So,
the economy went backwards.
Last but not least, Mao’s decade-long self-destruction of the Cultural
Revolution nearly wrecked the Chinese economy, as announced in
February 1978 at the Fifth People’s Congress by the Premier Hua Guofeng
(1921–2008),
[Due to Mao’s Cultural Revolution,] we lost 100 billion yuan in industrial
GDP, 28 million tons of steel, 40 billion yuan fiscal revenue. Our entire
economy was on the brink of collapse.19
C. Deng Xiaoping’s reforms
In the context of Mao’s failure in economic growth and development, it
becomes easier to understand why and how Deng Xiaoping’s reforms
have succeeded: by 1978, China’s economy had touched rock bottom and
had nothing to lose as Maoism had done so much damage to the country.
During Mao’s reign, Deng and his fellow enlightened Communists were
fully aware of the miraculous growth in Japan and the Asian Tigers.20 Deng
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From Economic Failure to Economic Reforms
was reported to state that
‘ In the 1950s the technological gap between China and Japan was
insignificant. But we isolated ourselves during the following 20 years and
did not have international competitiveness on our agenda. It was during
this period that Japan became an economic power.’20
It was not a hard choice to make a switch to the Asian Tigers’ market
model. Deng’s personal quality and vision played a crucial part in directly
challenging Maoism and leading China out of the Maoist impasse.22
The Dengist reforms represented a major discontinuity not only in
handling capitalism in the Chinese Communist Movement since 1921 but
also in China’s dealing with the outside world since 1949. Much has been
discussed about the nitty-gritty of Deng Xiaoping’s reforms.23 The general
purpose of Deng’s reforms was simply to offer the Chinese population an
exit from the Maoist extra-economic control over land, capital and labour
which ended in a deadlock and hence to free them from hunger and poverty
by restoring individual incentives and personal wealth, known as “socialism
with Chinese characteristics” and “socialist market economy.”
It is an open secret that these “Chinese characteristics” were a capitalist
market economy under a political rule of a communist party. In 1980 he
announced that
‘Modernisation is the key to all our solutions to internal and external
problems [associated with Maoism]. By the end of this century, we must
try our best to reach a GDP at 1,000 American Dollars per head and live a
reasonably comfortable life [xiaokang].’25
This was truly an earth-shaking, no-nonsense nationalistic talk. The
mentioning of American Dollars as a benchmark for a comfortable material
life alone would get any one in serious trouble three years earlier when Mao
was still kicking. One only needs to remember that in the last Maoist party
constitution of 1973, the mission of the party was described as to engage
solely with “class struggle.”26
In his 1990–1 tour to South China, Deng went one step further:
‘Our officials have hesitated in reforms. They have feared of too much
capitalism in China. The criterion to judge whether we are with capitalism
or with socialism is to see whether we … improve people’s living standards.’27
Here, Deng advocated the idea that to improve people’s living standards is
the foundation of the legitimacy to rule China.
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Deng
In terms of the actual processes of socio-economic changes, the Dengist
reforms came first from the grassroots in rural China which was then
matched by changes in a top-down fashion in the urban sector. The initial
anti-Maoist undercurrent emerged independently in 1978 with no input
from any official. It began in one of the poorest provinces Anhui and in the
most vulnerable sector of farming. On one post-harvest winter night, 18
farmers in Fengyang Village who desperately wanted to break free from their
collective farming signed a secret contract under which they collectively
paid rent to their commune but unilaterally split the land between family
farms. This was illegal but offered farmers some hope because that village
was so poor that begging for food was a farmer’s winter occupation.28 As
Mao’s treat of class struggle was still active at the time, the contract included
a clause that if anyone was purged the rest were to raise the victim’s families.29
What was truly remarkable was that these poor and isolated peasants
actually worked out that Mao’s collective landownership was a lie, as no
commune member legally had a share of land, let alone the right to alienate
his or her share.30 It took them over twenty years to realise that. But they
did, nonetheless. Once this became clear, they subdivided tenancy to
achieve “Pareto efficiency” among themselves as tenants. This was by far
the most daring rebellion against Maoism which soon wrecked the rural
commune system after twenty years of brutal suppression. The gamble
paid off. In North China, immediately after the subdivision of tenancy,
labour productivity increased 50 percent; and land yield increased 200–300
percent.31 The trend continued. By 1986, in rural Zhejiang, private earnings
accounted for half of all incomes while the share of collective income
dropped to one third.32 In the early 1980s, in Funan County (Anhui), a
family was able to produce the same amount of crop surplus for sale as the
whole production brigade (village) previously; and the total cash income
from farming in a single year surpassed the twenty year aggregate under
Mao’s commune.33
Official endorsement soon followed in a matter of months. The new
system that followed is known as the output-cum-tenure (lianchan chengbao
zerenzhi, literarily “output responsibility tenure”) constructed between state
agents (often disguised as the manager of a rural commune) and family
farmers. The early peasant unilateralism was replaced by proper bilateralism.
But one condition must apply: land alienation was not permitted.34 The state
landownership finally came out of the closet after Mao’s systematic falsehood
that existed since 1957. China’s age old “permanent lease-holding rights”
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From Economic Failure to Economic Reforms
(yongdian) were revived.35 According to Clause 20 of the 2002 “Rural Land
Contract Law” (Nongcun Tudi Chengbao Fa), the tenure on the state land
is set for 30 years for family farms. The rebuilding of family farms soon
spread like wild fire.
Private capital investment boomed. From 1978 to 2000, cultivated
acreage increased by just 7 percent; but irrigation acreage was doubled.36
There was a sevenfold growth in the total machine power in farming with
an annual growth of 9 percent.37 The input of chemical fertilizers increased
nearly tenfold with annual growth of 10.7 percent. 38 Both rates were
faster than the GDP growth in the farming sector during the same time.
Researchers have now indicated that decollectivisation was by far the single
greatest contributor to the revitalising of China’s agricultural productivity:
up to 87 percent.39 Technology contributed up to 40 percent; and the ending
of the scissors pricing, about 20 percent.40 The Maoist compulsory workdays
for each peasant to devote to collective farming ended. China’s agriculture
began to repeat its old glory of crop outputs (2000 compared with 1980,
1980 = 100) and crop sales (2000 compared with 1985, 1985 = 100):41
Output (%)
Sales per household (%)
Cereals
144
214
Oilseeds
477
128
Cotton
163
137
Tea
225
–
Fruits
916
672
Meats
–
214
China’s chronic food scarcity was replaced by food abundance. In 1990,
the intolerable food ration finally came to an end in all cities.42 Ordinary
Chinese were able to eat as much as their wallets allowed for the first time
since 1957. Meanwhile, the ordinary Chinese wallets became fatter for
the first time since 1960. The Chinese physical stature began to improve
from the 1980s on. In addition, for the first time since 1930, obesity, not
malnutrition, has become headline news in the media.
The increased incomes of the peasants pushed up the aggregate
demand for manufactures and services (such as transport and catering)
that the peasantry were unable to afford under Mao. The old pattern of
agriculture-led industrial growth, common in world history, now repeated
itself in China. However, the Maoist state-owned urban sector, still with
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Deng
command-economy shackles and heavy industry bias, responded to the
peasant demand shock too slowly during much of the 1980s. This created
opportunities for the rural sectors to produce their own manufactures
and services, hence a rise in village and township enterprises. Local
governments and communities began to act like entrepreneurs to exploit the
new market fortune.43 These enterprises were the first completely marketoriented businesses on China’s soil since 1957. This led to some remarkable
change in the employment pattern in the rural economy. According to
the rural survey in 1988, the share of collective activities accounted for
just a quarter of all China’s rural household income. Three-quarters of the
income came from private undertakings.44 The share from non-farming
activities reached 58 percent of China’s rural household income. 45 In
another account, the number of full-time farmers dropped by about 50
percent in 2000,46 while the share of income from farming dropped to
about a third at the same time.47 According to the survey, less than three
percent of the rural households exclusively lived on farming; 30 percent of
the rural households no longer farmed at all.48 Some rural regions became
modestly industrialised. For example, in the Jiangsu region, from 1978 to
1988 non-farming workers more than doubled, non-farming investment
increased fifteenfold, and non-farming labour productivity increase
ninefold.49 In that region, the share of rural manufacturing accounted for 68
percent of the local GDP with 53 percent of the labour force; rural services
rose to 15 percent of the GDP with 10 percent of the labour force.50
The knock-on effect followed. Some provinces as a whole have been
privatised. For example, in 2000 the private sector in Zhejiang controlled
80 percent of all assets, and provided over 90 percent of all jobs, sales, and
profits.51 The private economy made Zhejiang the second wealthiest province
in China (only three percent lower than Guangdong).52 The Maoist economy
was irrelevant to that province.
China-wide, the same trend was apparent. By 1984, about 100 million
rural workers had engaged in manufacturing and services. Most of them,
70 percent, stayed in rural regions but worked for township and village
enterprises.53 From 1980 to 2000, the number of township and village
enterprises exploded fourteenfold (14.4 percent increase a year) to 21.1
million; the number of workers these enterprises hired was more than
trebled (6.2 percent a year) to 128.2 million. The most impressive aspect was
the value-adding capacity of these enterprises. From 1980 to 2000, their total
revenues grew eighteen times (29.7 percent a year, current prices) to 1,078.3
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From Economic Failure to Economic Reforms
billion yuan; their net profit increased nearly six times (22.2 percent a year,
current prices) to 648.2 billion yuan.54 From 1989 onwards, rural enterprises
began to export. The total value of their exports reached 887.0 billion yuan
in 2000 which was over eighteen times of their 1990 level.55 These numbers
represent a true great leap forward towards non-agrarian growth and
development. With their competitive prices, quality and quantity, township
and village enterprises swept the wage goods market everywhere in China.
They shook the tightly controlled state sector to pieces and consequently
caused landslide closing down of the state-own light industry. A great many
state factories simply joined village and township firms to survive. This
was the first time the humble grassroots market economy so convincingly
defeated the privileged state-run command economy.
Understandably, village and township enterprises had its limits in
technology and management, and its expansion gradually slowed down
in the 1990s. Also, the lack of property rights and workers’ rights began
to take its toll. In the 1990s, rural industrial workers left in large numbers
to cities where workers’ rights were better defined and respected. After all,
it was them who provided the capital in the past 50 years to build these
cities. It was time for them to claim their fair share there. This led to the
most visible change of city-bound migration that was persistently restricted
during the Maoist era. There were both a “pull factor” and a “push factor” to
make rural people so willing to leave land: (1) higher incomes in cities, and
(2) a lack of private ownership over land in the farming sector. Post-Mao
China became a textbook case for Arthur Lewis’ dualism.56 According to
the 2000 national census, conservatively 88 million rural people had moved
to cities, accounting for a quarter of the rural workforce of the time.57 The
real figure was likely 40 percent higher.58 In a bizarre twist, capitalism has
returned a favour to Maoism by rescuing the failing communist economy
because Maoism made so many landless labourers so available and so
cheap. China’s landscape of urbanisation changed. In 2000, China’s urban
population doubled its 1978 level and China’s urbanisation rate reached for
the first time in Chinese long history 36.2 percent.59 The annual growth rate
was 3.2 percent, over ten times faster than Mao’s record. For the first time
after 1949 living standard improvement, industrial growth, modernisation,
and urbanisation synchronised in China. It is no exaggeration that the
privatisation of the rural economy saved China from Maoist ruins.
The Dengist state was not passive. Given Mao’s political crimes and
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economic mismanagement, the legitimacy of the ruling Communist
Party was severely eroded. Reforms were the only hope to redeem Mao’s
decades-long pandemonium. The stakes were high. For the reformers, the
state-owned sector was the colossal stronghold of Maoism in the economy.
Deng and his followers grasped the nettle. From 1979 to 1984, all the main
steps to tackle the state-owned sector known to us today were carefully
planned with the following measures:60
(1)
Establishment of Special Economic Zones (1979),
(2)
Doctrine of “two systems within one country” (yiguo
liangzhi) (1980),
(3)
Permission of foreign investment and tourism (1980),
(4)
Abolition of administrative barriers across regions (1980),
(5)
Establishment of duty contracts for managers (1981),
(6)
Replacement of “profit submission” with formal taxes (1981),
(7)
Deregulation of price control over all consumer goods (1982),
(8)
Deregulation of procurement of all rural products (1983),
(9)
Permission to employ foreigners (1983),
(10)
Deregulation of geographic control over foreign businesses
(1984).
The opening up of fourteen major coastal cities and their hinterlands in
1984 was truly a great leap forward towards what can be called China’s
second Westernisation Movement.61 The capitalist genie was reintroduced
to society after a long interval since 1956. After these fourteen cities, China
passed the point of no return to Maoism. By 2002, China had 45 economic
and technical development districts (jingji jishu kaifaqu). All had 30 or near
30 percent growth in investment, GDP, and export in that year.62
Of all these measures, the single most effective one was the deregulation
of the state control over the economy and resumption of Foreign Direct
Investment (FDI). Deng used them as a lever to prize the urban sector open
without immediate privatisation of the state sector. Foreign firms created
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From Economic Failure to Economic Reforms
a small but internationally efficient workforce: in 2000, foreign companies
(including those of Hong Kong and Macao) hired only 6.4 million workers
(vis-à-vis 24.1 million hired by the rest of the private companies).63 It set
a new benchmark for economic efficiency in China. More importantly, to
open China’s door for foreign trade and investment necessarily switched
the economy to the model of “export-oriented industrialisation” (EOI),64 a
strategy that China had until 1936. EOI has opened the floodgate for cheap
foreign capital and technology to meet with an unlimited supply of cheap
labour in China in order to produce goods cheaply for the rest of the world.
The beauty of EOI is that industrialisation pays for itself and does not burden
domestic consumption, savings, and taxes. In effect, from the viewpoint of
Sun Yat-sen, to import foreign capital was the only way in which China was
able to develop.65 Most importantly, EOI package has finally stopped the
wasteful practice of producing deadweight by heavy industry in the name
of industrialisation. China’s foreign trade value reached US$ 474.3 billion
in 2000, equivalent to 44 percent of China’s total GDP.66 The figure has been
on the rise by the day. FDI and EOI mutually reinforced each other in a
virtuous cycle. Together, they changed China’s growth trajectory.
On the whole, China’s FDI owed much to investors of overseas Chinese and
the Asian Tigers while China’s EOI owed much to consumers of G7 countries.
By 2000, 53 percent of China’s FDI came from Hong Kong, Taiwan, Singapore,
and South Korea.67 On the other side of the equation, in 2000, 53 percent of
China’s exports went to the United States, the European Union, and Japan.68 The
loop was complete. In the process, China has finally found its newly established
comparative advantage in the global economy. From 1978 to 2000, the total
value of China’s foreign trade increased 110 times (from 35.5 billion yuan to
3,927.3 billion yuan, current prices). China finally came out of the Maoist
agrarian trap and became the “workshop of the world”: 90 percent of China’s
exports were manufactures (as in 2000).69
To march FDI, China’s domestic market economy was reinstated after 27
years of Maoism. In the 1980s, a total of over 400 pieces of anti-market laws
and government regulations were abolished.70 With it, economic activities
were mainly dictated by demand and supply, not by orders from the state
planning commission. This was the most powerful antithesis to the Maoist state
ownership. China’s domestic re-marketisation was intensified by FDI. Armed
with their financial and technological muscles, foreign investors formed the
most powerful external antithesis of the Maoist state ownership.
The Maoist economy was doomed. In absolute terms, from 1995 to 2000,
the Maoist urban sector lost a total of 48.1 million workers (70 percent of Mao’s
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Deng
industrial workforce) and was no longer a net job provider in the economy.
Meanwhile, the private economy created a total of 182.1 million vacancies,
offsetting the job losses in the Maoist economy by massive 134.0 million new
jobs.71 Evidence has confirmed that the majority of China’s industrial workers
are new wage labourers, or proletarians.72 The capitalist economy allowed the
failing Maoist economy to die with dignity without massive unemployment:
from 1980 to 2000, China’s unemployment rate was a modest 2.7 percent on
average.73 This was remarkable compared with appalling unemployment records
in most ex-Soviet Bloc countries in their market reforms.
Behind the scenes, the real movers and shakers were the new bourgeoisies.
They emerged under the wing of the new party leadership of Jiang Zemin. In
1997 and 2002 Jiang announced twice at the party’s congress that business
people were citizens of full rights and production factors other than labour
(such as capital and technology) were equally entitled to yield returns.74 This
is the fatal blow to the Marxian labour theory of value. In 2000, this new class
had four million members who owned a total of 1.8 million firms with 1,330
billion yuan assets and 20.1 million workers.75 The number was doubled to
eight million in 2003.76 In another account, China’s millionaires grew at the
speed of one million a year after China joined the World Trade Organization
(WTO) in 2001.77 This newly emerged class quietly pushed itself to the political
arena. By 2000, 13,900 private entrepreneurs had entered local parliaments
(called “people’s congresses”) and local think-tanks (called “people’s political
consultative conferences”); eight had managed to join the National People’s
Congress.78 There was also a new middle class of professionals. By 2000, it
had had 82.0 million members, constituting 12 percent of China’s workforce.79
Overall, Deng outperformed Mao in 15 areas:
Mao Zedong
Deng Xiaoping
Consumer revolution
No
Yes
Economic freedom
No
Yes
Efficient resource
allocation
No
Yes
Fast technological change
No
Yes
Fast urbanisation
No
Yes
Firms and workers’
incentives
No
Yes
Freeing from budget
constraints
No
Yes
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From Economic Failure to Economic Reforms
Freeing from excessive
and wide poverty
No
Yes
Freeing from low level
equilibrium
No
Yes
Freeing from man-made
famine
No
Yes
Freeing from negative
GDP growth
No
Yes
Higher income for
ordinary people
No
Yes
Modern economic
structure
No
Yes
Private property rights
(de facto)
No
Yes
Cashing in China’s
comparative advantage
No
Yes
D. Conclusion: overall assessment
It was true that today’s China could not have started from nothing in 1978.80
But to attribute the Dengist growth potentials directly to Mao’s rule, as
many have done, will be an unforgivable mistake. Mao’s Eurocentrism and
economic illiteracy cost China dearly.
If we agree that the Dengist reforms, which represented a deliberate
U-turn from the Eurocentric approach and a close imitation of the
model of the Asian Tigers, are mainly to reinstate private interests and
public entitlements that were brutally denied by Mao, these reforms
reflect the legacy of old Confucian China. Such a legacy has nurtured
what is internationally recognised as the “entrepreneurial spirit of the
overseas Chinese.” One has to question why and how the same spirit was
extinguished inside China under Mao. The Maoist hardware in the form
of the state-owned industry did not serve as a launch pad of the Dengist
economic take-off. Rather, as our evidence shows, it was a heavy burden
that significantly reduced the payload during that take-off. To link Mao’s
decades long misconduct to China’s current growth miracle is no more
than a wishful fantasy.
The Dengist state succeeded in re-orienting itself towards the market and
towards its own people, its economy, and its rapport with the outside world.
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Deng
After all, the market is far more democratic than the centrally planned economy.
By 2000, 85 percent of China’s commodities were solely dictated by the market.81
Technocrats have replaced Maoist ideologues to nurture the market, economic
growth, and development. The results speak for themselves: for the first time
since 1800, China’s economic structure has changed towards modernity; for
the first time since 1949, China has departed from a product-scarce economy
and become a product-rich economy; for the first time since 1949, getting rich
has become a real possibility for many ordinary Chinese. More importantly, for
the first time the structural change and output increase have come in unison
with a rise in ordinary people’s living standards. China’s population today is
exponentially better off than in Mao’s era: at least ordinary Chinese are able to
eat properly and have a dispensable income for consumer goods. Politically, they
are no longer captives of Mao’s personal cult. Economically, they no longer work
for nothing. In short, the reforms have made China visibly prosperous again.
It will be naïve to expect China’s reforms to be problem-free. Domestically,
the heavy burden of the moribund state-owned sector continues, which may
drag the economy down with its bad debts; the income gap measured by the
Gini coefficient has increased from 0.28 (as in 1983) to an alarming 0.47
(2012, the official figure), which may jeopardise social tranquillity.82 Ordinary
workers’ rights have often been ignored and violated, which sometimes has
had explosive social consequences. The rural economy has slowed down at
least in relative terms and the income gap between the urban and rural sectors
has widened, which is reflected by the thorny “three rural problems” (sannong
wenti) regarding rural life, farming and farmers. Above all, China has been
consistently ranked one of the top 20 most corrupt countries in the world since
the 1990s.83 From 1978 to 2000, the number of corruption cases increased
22 percent a year, much faster than China’s GDP growth, meaning that the
privileged few are raking in much faster than the general population. It has
been argued that unless China goes for a democracy a minimum 10 percent
of GDP per year goes to official corruption indefinitely.84 Unfortunately, not
enough progress has been made since 1978. As a result, official and business
corruption has been commonplace on all levels of the bureaucracy and military
which has in turn nurtured vested interest groups in society, putting China’s
social stability in real jeopardy.85
Moreover, there has been the environmental issue regarding depletion of
resources and global warming. Back in 1995, the environmental damage had
already cost China a total of US$ 75 billion,86 more than China’s intake of foreign
direct investment of the time.87
154
From Economic Failure to Economic Reforms
However, it is fair to suggest that economic inequality, official corruption and
environmental damages are not China-specific. Rather, they are global. Even
so, the Dengist state was rather ill-prepared for the onslaught of these three
problems, not to mention that these problems collude head on with what the
ruling party has repeatedly promised to the general public. Official corruption
and environmental damage in particular have been exacerbated by a lack
of counterbalance and checks in the Chinese system, which is commonly
described as “six no‘s” (liu wu): no independent auditor to monitor the
economy, no independent central bank to regulate the monetary and capital
markets, no central agent to control tax collections, no institution to control
local expenditures (which fuel official corruption), no independent voice of
shareholders to veto CEO’s decision (which allows fat cat bonuses), and no
independent press to guard public interests (especially pollution and economic
compensation).88 However, they are all symptoms of a lack of political reforms
of the Soviet party-state system right from the beginning when Deng’s reforms
began in the late 1970s.
China future is now very uncertain despite its status as the largest trader and
the second largest economy in the world. The vigorously publicised “China’s
Dream” (Zhongguo meng) may turn out to be a socio-economic nightmare
in the end.
Notes
1. This is equivalent to US$ 1,080–1,944 billion of the 2005 price with a factor of 10.8 for
inflation (on line: http://mykindred.com/cloud/TX/Documents/dollar.); see Zheng
Yi (ed.), Jiang Jieshi Zenyang Shiqu Dalu (How Chiang Kai-shek Lost Mainland)
(Hong Kong: Hong Kong Art and Literature Press, 2006), 472; Chen Xiaoqing, Li
Jifeng and Zhu Lexian, Kangzhan Shiwu Nian (Fifteen Years of Counter-Japanese
Invasion) (Nanning: Guangxi Normal University Press, 2008), 396.
2. Based on the 1942 exchange rate at US$ 1 = Chinese ¥ 20, and hence 2,000,000
million Chinese silver yuan; see “Global Financial Data” (on line: http://www.
globalfinancialdata.com/index.). China’s total annual GDP is based on the estimate
of 22 to 30,000 million silver yuan before the war, based on Wu Baosan , “Zhongguo
Guomin Suode, 1933, 1936 Ji 1946” (China’s National Income, 1933, 1936 and 1946),
Shehui Kexue Zazhi (Social Sciences Magazine) 9/2 (December 1947): 12–30; Tachung Liu and Kung-chia Yeh, The Economy of the Chinese Mainland: National
Income and Economic Development, 1933–1959 (Princeton: Princeton University
Press, 1965), 66.
3. Jiang Zemin, “Yishi Weijian Kaichuang Weilai” (Taking Warning from the Past for
the Future), Renmin Ribao Haiwaiban (People’s Daily, Overseas Edition) (November
30, 1998): 1; Chen et al., op cit, 396.
155
Deng
4. Grace M. Hawes, The Marshall Plan for China, the Economic Cooperation
Administration 1948–1949 (Cambridge [MA]: Schenkman Publishing Co., 1977).
5. Zheng, op cit, 251, 426. See also Peter Vladimirov, The Vladimirov Diaries, Yenan,
China: 1942–1945 (New York: Doubleday, 1975), 502.
6. Mao’s purges included the “1950–3 Suppression of Anti-revolutionaries” (zhenfan),
“1951–2 Three-Anti and Five-Anti Movement” (sanfan wufan), “1957 AntiRightists” (fanyou), “1957 Internal Rectification Purge” (zhengfeng), “1959 Lushan
Purge against the Party Right-Wingers” (lushan huiyi), “1964 Four Cleansings
Campaign” (siqing), and “1966–76 Proletarian Great Cultural Revolution”.
7. Vladimirov, op cit, passim.
8. Data for the industrial workforce is based National Bureau of Statistics, Zhongguo
Laodong Tongji Nianjian 1998 (China’s Labour Statistical Year Book, 1998) (Beijing:
China’s Statistics Press, 1998), 81. Data for China’s population figures are based on
National Bureau of Statistics, Zhongguo Tongji Nianjian, 1986 (China’s Statistical
Year Book, 1986) (Beijing: China’s Statistics Press, 1986), 91.
9. Li Wenhai, Xia Mingfang and Huang Xingtao (eds), Minguo Shiqi Shehui Diaocha
Congbian, Chengshi Laogong Shenghuojuan (Selected Social Surveys of the
Republican Period, Volume on Urban Workers) (Fuzhou: Fujian Education Press,
2005), vol. 2, 969, 989, 990, 992, 995, 1026.
10. See Ling Zhijun, Lishi Buzi Paihuai (History, No More Hesitation) (Beijing: People’s
Press, 1997), p. 102; National Bureau of Statistics, Zhongguo Tongji Nianjian, 2003
(China’s Statistical Year Book, 2003) (Beijing: China’s Statistics Press, 2003), 34.
11.Ryoshin Minami, The Economic Development of Japan: A Quantitative Study
(London: Macmillan, 1986), 24; S.G. Wheatcroft, R. W. Davies and J. M. Cooper,
“Soviet Industrialization Reconsidered: Some Preliminary Conclusions about
Economic Development between 1926 and 1941,” Economic History Review 39/2
(1986): 273; Priyatosh Maitra, Indian Economic Development: Population Growth
and Technical Change (New Delhi: Ashish, 1991), 101, 132; Penelope Francks,
Japanese Economic Development, Theory and Practice (London: Routledge, 1992),
29; R.W. Davies, Mark Harrison and S.G. Wheatcroft, The Economic Transformation
of the Soviet Union, 1913–1945 (Cambridge: Cambridge University Press, 1994),
112; P.R. Gregory, Before Command: An Economic History of Russia from
Emancipation to the First Five-Year Plan (Princeton: Princeton University Press,
1994), 21, 42.
12. Jasper Becker, Hungry Ghost, China’s Secret Famine (London: John Murray, 1996),
ch. 18; Jin Hui, “Sannian Ziyanzaihai Beiwanglu” (Memorandum on the Alleged
Three Years of Natural Disasters, 1959–62), Shehui (Society) 4–5 (1993): 13–22;
Cao Shuji, Da Jihuang, 1959–1961 Niande Zhongguo Renkou (Great Famine and
China’s Population in 1959–1961) (Hong Kong: Times International Publishing
Co., 2005). By far, the best work has been Yang Jisheng’s Mubei – Zhongguo Liushi
Niandai Dajihuang Jishi (Gravestone for the Great Leap Famine Victims, Evidence
from History) (Hong Kong: Tiandi Books, 2008).
13.Ministry of Finance, Zhongguo Caizheng Nianjian, 1997 (China’s Financial Year
Book, 1997) (Beijing: China’s Finance Magazine Press, 1997), 479; National Bureau
156
From Economic Failure to Economic Reforms
of Statistics, Zhongguo Tongji Nianjian, 2002 (China’s Statistical Year Book, 2002)
(Beijing: China’s Statistics Press, 2002), 51.
14. National Bureau of Statistics, Statistical Year Book, 2002, p. 51.
15. Ministry of Finance, Financial Year Book, 1997, 479.
16. One study argues that without the waste, China’s GDP could have been three times
higher to allow China to become a middle-income country by 1978; see Zheng
Zhuyuan, Taiwan Haixia Liang-ande Jingji Fazhan (Economic Development on
Both Sides of the Taiwan Strait) (Taipei: Lianjing Press, 1985), 111–26.
17. Yu Guangyuan (ed.), China’s Socialist Modernization (Beijing: Foreign Language
Press, 1984), 458; see also Zhang Hua and Su Caiqing (eds), Huizhou Wedge,
Zhongguo Simian Wedge Benxi Yu Fans (Recollection of the Decade of Cultural
Revolution, Analyses and Soul-Researching) (Beijing: Chinese Communist Party
History Press, 2000), vol. 1, 396.
18. Liu Xin and Liu Gang, Zhongguo Jingjixue Sanshinian (Economics in China in the
Past Thirty Years) (Beijing: China’s Finance and Economy Press, 2008), 115.
19. Hua Guofeng, “Tuanjie Qilai, Wei Jianshe Shehuizhuyide Xiandaihua Qianguo Er
Fendou” (United to Build a Socialist Modern Power), Renmin Ribao (People’s Daily)
(27 February, 1978): 1.
20. Zong Fengming, Zhao Ziyang Ruanjinzhongde Tanhua (Conversations with Zhao
Ziyang under House Arrest) (Hong Kong: Open Press, 2007), 22, 25.
21. Deng Xiaoping, “Zongjie Lishi Shiweile Kaipi Weilai” (Studying History in Order to
Explore Our Future), in Deng Xiaoping, Deng Xiaoping Wenxuan (Selected Works
of Deng Xiaoping) (Beijing: People’s Press, 1993), vol. 3, 274.
22.Li Li-an and Zheng Keyang (eds), Deng Xiaoping Yu Gaige Kaifang Shisi Nian
(Deng Xiaoping and Fourteen Years of Reforms and Opening Up) (Beijing: Beijing
Normal University Press, 1993), 4.
23.D.W. Chang, China under Deng Xiaoping: Political and Economic Reform
(Basingstoke: Macmillan, 1988); Terry Cannon and Alan Jenkin, The Geography of
Contemporary China: the Impact of Deng Xiaoping’s Decade (London: Routledge,
1990); M. Ying-Mao Kau and S. H. Marsh (eds), China in the Era of Deng Xiaoping:
a Decade of Reform (Armonk [NY]: M.E. Sharpe, 1993); Richard Evans, Deng
Xiaoping and the Making of Modern China (London: Hamish Hamilton, 1993);
D.S. Goodman, Deng Xiaoping and the Chinese Revolution: a Political Biography
(New York: Routledge, 1994); Shao-chuan Leng, Reform and Development in Deng’s
China (Lanham: University Press of America, 1994); Wei-Wei Zhang, Ideology
and Economic Reform under Deng Xiaoping, 1978–1993 (London: Kegan Paul
International, 1996); Maurice Meisner, The Deng Xiaoping Era: an Inquiry into the
Fate of Chinese Socialism, 1978–1994 (New York: Hill and Wang, 1996); R. F. Ash
and Y. Y. Kueh (eds), The Chinese Economy under Deng Xiaoping (Oxford: Oxford
University Press, 1996); M. E. Marti, China and the Legacy of Deng Xiaoping: from
Communist Revolution to Capitalist Evolution (Washington, D.C.: The Brassey’s,
2002).
24. Gu Shutang, Shehuizhuyi Shichang Jingji Lilun Yanjiu (A Model for Socialist Market
Economy) (Beijing: China’s Audit Press, 2001), chs 3, 12, 17.
157
Deng
25. Li and Zheng, op cit, 14.
26. Zhang Hua and Su Caiqing (eds), Huizhou Wedge, Zhongguo Simian Wedge Benxi
Yu Fans (Recollection of the Decade of Cultural Revolution, Analyses and SoulResearching) (Beijing: Chinese Communist Party History Press, 2000), vol. 2, 1098.
27.Deng Xiaoping, “Zai Wuchang, Shenzhen, Zhuhai, Shanghai Dengdide Tanhua
Yaodian” (Outline of Talks in Wuchang, Shenzhen, Zhuhai, and Shanghai), in Deng
Xiaoping, Deng Xiaoping Wenxuan (Selected Works of Deng Xiaoping) (Beijing:
People’s Press, 1993), vol. 3, 372.
28. Ma Licheng, Jiaofeng Sanshi Nian (Thirty Years of Confrontation) (Nanjing: Jiangsu
People’s Press, 2008), 38.
29. Li and Zheng, op cit, 7. For a replica, see Ling, op cit, 7.
30.It is worth noting that shareholding of land was very common in the late Qing
and Republican period. It applied to a quarter of all farmland across 22 provinces.
Shares were regularly traded; see Li Wenzhi and Jiang Taixin, Zhongguo Dizhuzhi
Jingji Lun (The Landlord Economy in China) (Beijing: China’s Social Sciences Press,
2005), 272–5, 285–95, 438–41.
31. Ling, op cit, 297, 303, 305.
32.Chris Bramall and M. E. Jones, “Rural Income Inequality in China since 1978,”
Journal of Peasant Studies 21/1 (1993): 53.
33. Ling, op cit, 305, 306.
34. Li and Zheng, op cit, 21.
35.Gang Deng, The Premodern Chinese Economy – Structural Equilibrium and
Capitalist Sterility (London and New York: Routledge, 1999), 56–60.
36. National Bureau of Statistics, Statistical Year Book, 2003, 417, 419, 425.
37. National Bureau of Statistics, Zhongguo Tongji Nianjian, 1981 (China’s Statistical
Year Book, 1981) (Beijing: China’s Statistics Press, 1981), 171; National Bureau of
Statistics, Statistical Year Book, 2002, 387. The figure for 1978 is discounted by 30
percent due to the constant break down of one-third of farming machines in Maoist
communes. After the production responsibility system such a wasteful practice
stopped.
38. National Bureau of Statistics, Statistical Year Book, 1981, 182; National Bureau of
Statistics, Statistical Year Book, 2002, 389. The figure for 1978 is discounted by 50
percent due to the constant problem of unavailability in full variety or inadequacy
in proportion under Mao’s rule.
39.J. Y. Lin, “Rural Reforms and Agricultural Growth in China,” The American
Economic Review 82/1 (1992): 34–51; Chris Bramall, Sources of Chinese Economic
Growth, 1978–1996 (New York: Oxford University Press, 2000), 334.
40. Jikun Huang and Scott Rozelle, “Technological Change: Rediscovering the Engine of
Productivity Growth in China’s Rural Economy,” Journal of Development Economics
49/2 (1996): 337–69; John McMillan, John Whalley and Lijing Zhu, “The Impact
of China’s Economic Reforms on Agricultural Productivity Growth,” The Journal
of Political Economy 97/4 (1989): 800.
41. National Bureau of Statistics, Zhongguo Tongji Nianjian, 2003 (China’s Statistical
Year Book, 2003) (Beijing: China’s Statistics Press, 2003), 430–2, 442–3.
158
From Economic Failure to Economic Reforms
42. Ma, op cit, 171.
43. Andrew Walder, “Local Government as Industrial Firm: An Organizational Analysis
of China’s Transitional Economy,” American Journal of Sociology 101/2 (1995): 266;
J. C. Oi, Rural China Takes Off: Institutional Foundations of Economic Reform
(Berkeley: University of California Press, 1999), 193–6.
44.Yu Dechang, Nonghu Jingji Xingwei Ji Laodong Shijian Liyong Tiaocha Ziliaoji
(Survey Data for Rural Households’ Economic Behaviour and Labour Input Patterns)
(Beijing: China’s Statistical Press, 1992), 331.
45. Ibid., p. 331.
46. National Bureau of Statistics, Statistical Year Book, 2003, p. 124; Lu Xueyi, Dangdai
Zhongguo Shehui Jiecen Yanjiu Baogao (Survey of Social Strata in Contemporary
China) (Beijing: Social Science Literature Press, 2002), 22.
47. National Bureau of Statistics, Zhongguo Shichang Tongji Nianjian, 2001 (China’s
Market Statistical Year Book, 2001) (Beijing: China’s Statistics Press, 2001), 29.
48. Yu, op cit, 325–6.
49. Ibid., 354.
50. Ibid., 352.
51. Lu, op cit, 238.
52. National Bureau of Statistics, Statistical Year Book, 2003, 72.
53. Li and Zheng, op cit, p. 53; National Bureau of Statistics, Statistical Year Book, 2003,
448.
54. National Bureau of Statistics, Statistical Year Book, 2003, 447, 448, 450, 451.
55. Ibid., 452.
56.A. W. Lewis, “Economic Development with Unlimited Supplies of Labour,”
Manchester School 22/2 (1954): 139–91.
57. Lu, op cit, p. 180; National Bureau of Statistics, Statistical Year Book, 2003, 99, 123.
58.Li Yi, The Structure and Evolution of Chinese Social Stratification (Lanham
[Maryland]: University Press of America, 2005), 219.
59. National Bureau of Statistics, China’s Statistical Year Book, 2003, 97.
60. Li and Zheng, op cit, 13, 19, 25, 28, 30, 34, 41, 45, 46–7, 51, 55.
61.They are from the north to the south: Dalian, Qihuangdao, Tianjin, Qingdao,
Yantai, Shanghai, Lianyungang, Nantong, Ningbo, Wenzhou, Fuzhou, Zhanjiang,
Guangzhou and Beihai.
62.Ministry of Commerce, Zhongguo Duiwai Jingji Maoyi Nianjian, 2003 (China’s
Foreign Trade Year Book, 2003) (Beijing: China’s Foreign Trade Press, 2003), p. 98.
63. National Bureau of Statistics, Statistical Year Book, 2003, 126–7.
64.For the growth strategy, see Hans Linnemann, Pitou van Dijck and Harmen
Verbruggen, Export-Oriented Industrialization in Developing Countries (Singapore:
Singapore University Press, 1987).
65. W. C. Kirby, “Kuomintang China’s ‘Great Leap Outward:’ the 1936 Three Year Plan
for Industrial Development,” Illinois Papers in Asian Studies, 2 (1983): 44–6.
66.Ministry of Finance, Zhongguo Caizheng Nianjian, 2004 (China’s Financial Year
Book, 2004) (Beijing: China’s Finance Magazine Press, 2004), 331, 415.
67.Ministry of Commerce, Zhongguo Duiwai Jingji Maoyi Nianjian, 2003 (China’s
159
Deng
Foreign Trade Year Book, 2003) (Beijing: China’s Foreign Trade Press, 2003), 490.
68.Ministry of Commerce, Zhongguo Duiwai Jingji Maoyi Nianjian, 2001 (China’s
Foreign Trade Year Book, 2001) (Beijing: China’s Foreign Trade Press, 2001), 487.
69.Ministry of Commerce, Zhongguo Duiwai Jingji Maoyi Nianjian, 2001 (China’s
Foreign Trade Year Book, 2001) (Beijing: China’s Foreign Trade Press, 2001), 486.
70. Ma, op cit, 163.
71. Lu, op cit, 236.
72. Numerous surveys, the highest profile one is Personnel Department of the Party
Central Committee, 2000–2001 Zhongguo Diaocha Baogao: Xinxingshixiade
Renmin Neibu Maoduo Yanjiu (2000–2001 Report of Survey of China’s Internal
Conflicts in the New Era) (Beijing: Central Translation Services Press, 2001). Others
include Li Qiang, Shehui Fenceng Yu Pinfu Chabie (Social Stratification and Income
Inequality) (Xiamen: Lujiang Press, 2000); Sun Liping, Shiheng: Duanlieshehuide
Yunzuo Luoji (Disequilibrium: Mechanisms of Broken Society) (Beijing: Social
Science Literature Press, 2004); Zhong Zeqi, Dangdai Zhongguo Shehui Fenceng
Zhuangkuangde Bianqian (Changes in Contemporary Social Stratification in China)
(Shijiazhuang: University of Hebei Press, 2004); Zheng Hangsheng and Li Lulu
(eds), Dangdai Zhongguo Chengshi Shehui Jiegou: Xianzhuang Yu Qushi (Social
Structure in Contemporary Urban China, Current Situation and Future Trend)
(Beijing: People’s University of China Press, 2004); Li Peilin, Shehui Chongtu Yu Jieji
Yishi (Social Conflicts and Class Consciousness) (Beijing: Social Science Literature
Press, 2005).
73. Ministry of Finance, Financial Year Book, 2004, 411.
74.See Jiang Zemeing, “Gaoju Deng Xiaoping Lilun Weidai Qizhi, Ba Jianshe You
Zhongguo Tece Shehuizhuyi Shiye Quanmian Tuixiang 21 Shiji” (Holding High Deng
Xiaoping’s Theoretical Banner and Pushing Socialism with Chinese Characteristics
towards the 21st Century), Renmin Ribao (People’s Daily) (12th September 1997): 1;
and his “Quanmin Jianshe Xiaokang Shehui, Kaichuang Zhongguo Tece Shehuizhuyi
Shiye Xinjumian” (Building an Economy of “Reasonably Comfortable Life” and
Opening up a New Page of Socialism with Chinese Characteristics), Renmin Ribao
(People’s Daily) (14th November, 2002): 1.
75. Lu, op cit, 214.
76. Li, op cit, 201, 203. The official figure was 6.2 million.
77. Ma, op cit, 229.
78. He Qinglian, Women Rengzai Yangwang Xingkong (We Are Still Praying) (Guilin:
Lijiang Press, 2001), 14.
79. Ibid., 18.
80. Will Hutton, The Writing on the Wall – China and West in the 21st Century (London:
Little Brown, 2007), 92.
81. Liu and Liu, op cit, 109.
82. Lu, op cit, p. 41. The Work Bank’s rates China’s Gini coefficients at 0.403 and 0.447
for 1998 and 2001, respectively, similar to many Latin American countries such as
Bolivia, Costa Rica, Dominican Republic, Ecuador, and Guatemala; see World Bank,
World Development Report 2000/2001 (New York: Oxford University Press, 2001),
160
From Economic Failure to Economic Reforms
p. 282; World Bank, Development Report 2005 (New York: Oxford University Press,
2005), 258.
83.He Zengke, Fanfu Xinlu (New Path to Combat Corruption) (Beijing: Central
Translation Services Press, 2002), 2, 50.
84. Zong, op cit, p. 244. A higher estimate is 17 percent of the GDP; see Ma Ling and
Li Ming, Wen Jiabao Xinzhuan (New Biography of Wen Jiabao), 8th edition (Hong
Kong: Mingpao Press, 2003), 192.
85. The recently publicised cases of Liu Zhijun (ex-Minister of Railways) and Bo Xilai
(ex-Party boss of Chongqing) are almost certainly the tip of the iceberg.
86.Zhong Dajun, Guomin Daiyu Bupingdeng Shenshi (Assessment of Unequal
Entitlement amongst Citizens) (Beijing: China’s Workers’ Press, 2002), 186.
87. China’s Investment Year Book Committee, Zhongguo Touzi Nianjian, 2006 (China’s
Investment Year Book, 2006) (Beijing: China’s Water Control and Hydro-electricity
Press, 2006), 918.
88. Hutton, op cit, 123.
161